The Builders’ Perspective

8 min read

Penciling Projects Amidst the Challenges

By all metrics, affordable housing remains challenging to produce. Despite a number of often high-quality programs and incentives originating from legislative entities aimed at helping build and maintain quality housing across income levels, the affordable construction landscape remains volatile.

Though many factors create project risks, three main challenges exist to make today’s building environment particularly difficult: unpredictable supply chain logistics, perpetual labor shortages and a sustained high-interest rate environment.

This painful triple threat is particularly tricky for affordable developers, says Rick Kottke, vice president of construction for Harkins Builders, Inc., since they don’t have as much flexibility as market-rate owners to respond to market fluctuations. “Already between a rock and a hard place,” Kottke says, “affordable developers don’t have the added tool of raising their rents to circumvent those challenges.”

To get projects to pencil, owners often look to their general contractor (GC) to brainstorm, develop and implement creative solutions during all stages of construction. While there are many tools to approach the thorny modern building landscape, GCs have developed a few key strategies to help push projects over the finish line in a timely manner without sacrificing overall housing quality.

Advanced Procurement
Supply chain disruption and product availability continue to be a major pain point, as it remains unpredictable which specific commodity will be next affected by previously unimaginable delivery timelines. “The biggest issue we see now is supply chain and product availability,” says Tim Amorello, division manager of construction loan monitoring at Moran Construction Consultants. “That changes on what it may be,” says Amorello, noting that in the past 1.5 years alone everything from fiber cement siding, windows, roofing, insulation and concrete have fluctuated by as much as five times their ‘typical’ lead time.

One solution that Amorello says Moran recommends to its clients is “early buyout. What that means is getting the contractor to either get purchase orders or contracts written to their subcontractors and suppliers ahead of time so that everyone can know the lead time and what the potential challenges may be to complete that project.”

This has led to immense infrastructure building by construction firms to handle this new process. For example, Arne Goldman, director of business development at Marous Brothers Construction, says that “a couple of years ago, when we heard that drywall as a commodity was going to go up in price, we bought and warehoused a million square feet of drywall so that we had it available for our projects.”

Understanding the effectiveness of this strategy not only led to investments in warehouse space but the creation of an entire purchasing department at Marous “that will buy things that may be used for multiple different affordable housing projects because they use similar specs.” Most commonly, Goldman says, they are warehousing “toilets, sinks, electrical fixtures, toilet accessories, kitchen cabinets and bathroom vanities.”

“We never used to do that,” Goldman says.

Early procurement is important for new builds, but particularly so for rehabs and renovations, says Kottke. “Having a product in hand on day one has always been a requirement of a successful renovation project,” so that community disruption is minimized. In those settings, Kottke says, “We’re often looking to finalize a design, and getting selections reviewed and approved and product and equipment ordered upwards of five to six months before a project may go to closing and receive a notice to proceed.”

Of course, early procurement is accompanied by “a good amount of risk,” says Kottke. Often, this risk is on the builder, who must not only sink cost into sourcing and warehousing materials but may be stuck with unusable project-specific products should the development go south. To mitigate this risk and reduce overall financial exposure, Kottke says that his team will “often aim to align our procurement timing with important financial milestones that inform our clients, and everyone else involved, that this project continues to move forward, and things are looking positive.”

Earlier Collaboration and Deeper Communication
Even the strongest solutions to today’s difficult building landscape only go so far if a team is not functioning correctly, and builders are increasingly reliant on proactive, holistic communication early in the project timeline. This communication and collaboration need to include all members of the design and project teams as early as possible.

For example, Goldman says that architects and engineers are spending more time on the front end of projects, a move that wasn’t typical in years past. Historically, architects and engineers spent the most amount of time doing construction documents, a process that typically fell later in the project timeline, once many other pieces were in place. However, Goldman says that in today’s volatile environment, that just isn’t possible, as a project team might need the flexibility to make a hard pivot during preconstruction. “We need them to be at the table every week, giving us updated drawings and helping make decisions and informing us about alternative materials, means and methods,” says Goldman.

Of course, broadening the team earlier in the building and design process invites conflict. To ensure good relationships in this dense network of stakeholders, Amorello has found that teams must “clearly define what the project needs and have all parties involved—meaning the owner, the investor and the professional of record—and then communicate that to the contractor.”

Amorello also notes the value of bringing on board a third-party consultant, to ensure that nothing is overlooked as projects move forward and get more complicated and that the maximum possible investment dollars can flow into the build. For example, “Let’s say there’s a hole in the budget because the water line wasn’t big enough. We want to make sure that they don’t take money from the new playground to cover the costs for the rest of the water because the playground is tied to that tax credit. So, the owner will need to secure a source of funding for that overage a different way.”

This flexibility to unexpected hurdles requires immense trust between project partners. Kottke says that in his experience, the quickest way to develop that deep trust is to “break it down into buckets: be very transparent; have real-time communication; over-communicate; and work towards the shared experiences that ultimately lead to trust.”

Kottke notes that trust is only sustainable if teams view challenges as project problems and not just something that one party or the other is responsible for. “What can we do together to solve this project problem, so it has the smallest impact on the project? We try not to distinguish between the parties and just identify it as a project problem and roll up our sleeves together and then solve the problem.”

Practical Adaptations for Long-Term Solutions
Though GCs’ modern challenges at times seem intractable, some builders have been forced to adapt in ways that they feel will have lasting benefits. Certain practices have come under scrutiny in positive ways, says Kottke, both from a labor and supply standpoint. This can be redundant materials handling, excessive internal bureaucracy and inefficient construction methods leading to unnecessarily extended project durations. In sum, teams must now always ask: “How do we keep a project’s quality high and its cost low?”

For example, one lasting change, says Goldman, is the trend away from using the traditional design-bid-build delivery model, where a developer will first hire an architect, then compile a bid list and will choose the cheapest general contractor. The fact that those days have come and gone is a boon to the industry, says Goldman. “It’s a horrible project delivery model,” Goldman says, that often resulted in unnecessary litigation caused by “bad communication and silo-ism. The owner wants to get the most amount of work done for the least amount of money, the contractor wants to do the least amount of work for the most money and the architects are just ducking for cover because their drawings can never be perfect.”

Also, Goldman says that Marous has changed its approach to subcontracting due to the continually challenging labor market – a problem that he and others acknowledged prior to COVID and will likely exist for years to come. “When we’re doing large projects,” says Goldman, “we used to just hire one great subcontractor for each trade.” However, after experiencing project delays due to unexpected labor shortages, they now tend to break projects up for multiple subcontractors of the same type to tackle. “For example, we are building an off-campus student apartment at Purdue University, and we took every trade, and we broke the building in half. We did this in case one trade subcontractor has a labor issue and starts falling behind. By having another in the same trade, we’d have another subcontractor on-site to help get that work back on track. So, we’re getting smarter about breaking bid packages into much smaller pieces.”

This has the added benefit of overcoming labor challenges unique to rural environments, where large enough crews with the capacity to handle bigger projects simply do not exist. “We will organize the sites for them, and we will break the project up into pieces so that we’re right-sizing it for the subcontractors available in any market. Sometimes—like on the Purdue job—we might have four painting contractors, because it’s in rural West Lafayette, IN. There’s no one painting contractor there that has enough people that can keep up with the pace we need to make for on-time delivery.”  

Abram Mamet is a freelance writer based in Washington, DC, whose work focuses primarily on the social histories of the community. He currently works as the assistant editor for CapitalBop.